Professor Vern Countryman offers a clear and concise elucidation of s.547(c)(4)(B) in a Vanderbilt Law Review article: 'If the debtor has made payments for goods or services that the creditor supplied on unsecured credit after an earlier preference, and if these subsequent payments are themselves voidable as preferences (or on any other ground), then under section 547(c)(4)(B) the creditor should be able to invoke those unsecured credit extensions as a defense to the recovery of the earlier voidable preference
.' Vern Countryman, The Concept of a Voidable Preference
in Bankruptcy, 38 Vand.
For a transaction with an insurer or its holding company conducted outside of receivership or bankruptcy proceedings, a principal legal consideration is the risk that the transaction could be voided by a court, either as a "fraudulent conveyance" or a "voidable preference." Both concepts are governed by state law.
A "voidable preference" (to use New York insurance law, for example) occurs if there is a transfer of, or a lien created on, property of an insurer within a specified time period prior to receivership that's intended to prefer one creditor over other creditors of the same class.
This uncertainty was caused chiefly by the voidable preference
provisions in the Companies Act 1993.
At first, it might seem that the rescission theory helps to bail voidable preference law out of a conceptual difficulty that exists in the Bankruptcy Code but that did not exist in the Bankruptcy Act of 1898.
Today, courts would like to believe that [C.sub.1]'s lien is a voidable preference, within the meaning of Bankruptcy Code [section] 547(b).
There may be a question as to whether such an option should be deemed a voidable preference. In certain circumstances, a pledge of collateral by an insurer can be deemed a "voidable preference," resulting in the secured party unable to retain the collateral.
States that have enacted versions of the Uniform Act typically have enacted a voidable preference provision that permits a receiver to avoid any pledge of assets made within a certain period (in some cases up to one year) prior to commencement of the receivership if the pledge was made with the intent of giving a preference and the creditor had reasonable cause to believe that the preference would occur.
(i) to allow a non-debtor swap participant or the trustee to terminate a swap agreement so that a swap agreement could only continue after the bankruptcy is filed only by mutual consent of the non-debtor swap participant and the trustee; (ii) to permit immediate termination in order to minimize exposure to market volatility; and (iii) to address the need for swap participants to be able to close out existing transactions without fear that (a) closing out swaps would violate the stay, (b) a debtor would opportunistically reject unfavorable swaps and assume favorable ones; or (c) the transactions would be challenged as voidable preferences
These measures dealt with voidable preferences
in bankruptcy law.
Bankruptcy prediction models, voidable preferences
and fraudulent conveyances are each covered in this chapter.
A check for voidable preferences
or fraudulent transfers likewise yields nothing of consequence.